MILLIONS IN FINES FOR FRAUD GO UNPAID
Huge penalties issued by the B.C. Securities Commission over the past decade have gone virtually unpaid by perpetrators of investment fraud whose schemes have cost victims millions of dollars.
In March 2015, the B.C. Securities Commission handed out one of its biggest penalties ever.
Michael Lathigee and Earle Pasquill were each slapped with a $15-million fine and ordered to pay back $21.7 million raised fraudulently in 2008 from nearly 700 investors.
They were also banned from B.C.’s investment markets.
A judicial panel of the commission — which holds hearings and makes rulings on violations of B.C.’s Securities Act — found the pair had raised millions without telling investors Alberta real estate development projects pitched through their investment club were in serious financial difficulty.
The panel also found millions raised to invest in U.S. foreclosures had been redirected to prop up the Alberta real estate developments with unsecured loans.
Their penalty total came to $51.7 million.
The message was clear: If you violate the province’s laws meant to protect investors, you will pay.
The securities commission’s own words in issuing the gargantuan fine stated: “The sanctions we impose must be sufficient to ensure that the respondents and others will be deterred from engaging in similar misconduct.”
Lathigee and Pasquill, however, have not paid any of their penalties, commission records show.
They are among more than 80 fraudsters who have harmed thousands of investors — in B.C., other parts of Canada, the United States and as far away as Switzerland — yet have escaped paying the largest penalties issued by the commission, an investigation by Postmedia News has found.
From fiscal 2007-08 to 2016-17, the B.C. Securities Commission has collected less than two per cent of $510 million in fines and orders to pay back the proceeds of fraudulent activities, according to the commission’s financial reports and other records.
For the biggest fines, handed out for the most egregious violations and frauds, such as those for Lathigee and Pasquill, the collection rate is far worse.
Of the largest 29 penalties and payback orders of $1 million or more levied by B.C.’s Securities Commission in the past decade — which account for $458 million in fines — less than one-tenth of one per cent has been collected, according to an analysis of major penalties announced by the commission and its sanction payment status reports.
In interviews with experts, investment advocates, fraud victims, fraud perpetrators and regulators, the dismal collection rate raises a pointed question: What is the purpose of issuing the huge fines that often generate headlines but little else?
And more specifically, what is the deterrence value of the fines, a basic tenet of justice, if they are hardly ever collected.
In particular, victims find it galling there appears to be no real penalty, including a lack of jail time, for fraudsters who have bilked them of money.
One Lower Mainland investor, who joined the investment club Lathigee and Pasquill oversaw, lost $750,000.
“The whole retirement was there — I lost everything,” said the investor, who did not wish to be named.
B.C. Securities Commission officials acknowledge the poor collection rate, but say it is the nature of the fraudulent activity and the perpetrators that makes collection difficult and unlikely.
The money has been spent or hidden, sometimes abroad, or the fraudsters have fled.
The commission argues there is value in levying fines even when they are not collected, as it sets a “price to pay” for future fraudsters.
“There are those that may be able to pay. And they need to know that if they want to commit this misconduct, this is what the consequences of it could be,” said Doug Muir, the B.C. Securities Commission’s director of enforcement.
Others have a different opinion, saying the importance of not only levying but collecting monetary penalties is fundamental to a robust regulatory system.
“It is sort of an unsexy part of the job to actually try and enforce an order and recover (fines). But it’s clearly something that needs greater focus,” said Marian Passmore, director of policy and chief operating officer for the Canadian Foundation for Advancement of Investor Rights, which advocates for the rights of shareholders and individual investors.
CARP, an advocacy group for older Canadians — for which financial security and investment fraud is a major issue because seniors are often a target — calls fines a critical tool to deter investment fraud.
But, said Wanda Morris, CARP’s chief operating officer: “It’s hard to say fines are working as a deterrent if so few of them at those upper levels are being collected.”
ONLY ONE PERSON FROM STAFF OF 234 ASSIGNED TO COLLECT FINES
There are tools available to the B.C. Securities Commission to help collect penalties, including those that would give it access to assets such as property and vehicles.
The commission can file any of its decisions in B.C. Supreme Court, a simple administrative exercise, which automatically makes the penalties an order of the court.
A person who is a debtor before the courts can be compelled to give information on what assets he or she has and may have to produce bank statements and tax records, explained Victoria lawyer Michael Mulligan, who has been a visiting instructor at the University of Victoria’s law school.
And if a property has been transferred to someone else, for example, a spouse, to escape a penalty, that may also be considered fraud, he said.
Mulligan noted assets in another country are fair game. It’s why the widow of an American soldier is able to sue for the $10.5 million payout to Omar Kadhr by the Canadian government, he said.
An examination by Postmedia News of hundreds of pages of court, property assessment, land title and corporate registry records in B.C. and the United States shows there are, at least in some cases, assets held directly or indirectly by those who owe fines to the B.C. Securities Commission.
Muir, the commission’s director of enforcement, said the commission has been pursuing collections for “years,” but did not name any successes.
“We’ve done searches (of assets), which anyone can do. But that doesn’t necessarily mean it results in collection,” he said.
There may be obstacles to collection, he said, including that a house that is lived in by someone who has been penalized may not be theirs. “So, there are still legal rights that have to be contested at many stages of the (collection) process.”
Muir said that about one year ago a dedicated staff person was appointed out of the commission’s 234 staff to oversee collections.
The securities commission would not name the person.
The commission would also not say how much of its $46.6-million operating budget (which largely comes from regulatory and other fees) is spent on collections. The operating budget has increased 60 per cent in the past decade.
PASSING ASSETS TO SPOUSES IS COMMON
Among those handed the largest penalties by B.C. Securities Commission panels, Postmedia News tracked down $31 million in potential assets linked to the fraudsters.
Most assets are property held jointly by those penalized and their spouses and others, or held solely in the name of a spouse.
Pasquill, for example, lives in a home assessed by the province at $4.5 million in the west side of Vancouver, near the expansive grounds of the private St. George’s boys school.
The home had been in Pasquill’s and his wife Vicki’s names since 1995, but was transferred into Vicki’s sole name in 2000 for $1, according to B.C. Land Titles documents.
The transfer into his wife’s name alone took place just two years before investment activity between 2002 and 2005 that landed Pasquill and Lathigee in trouble with the B.C. Securities Commission for the first time. In 2007, Lathigee and Pasquill received fines of $60,000 and $30,000 respectively after admitting to illegally distributing securities and breaking their duties as directors and officers.
Both paid those smaller fines, a common theme in payments of penalties, where the smaller the fine the more likely it is to be paid, analysis shows.
On a wet Wednesday morning last month, there was a silver Lexus LS430 parked on the street in front of the Pasquills’ home. The house, with a green and trimmed lawn, had all of its blinds shuttered.
Pasquill declined to discuss his fine when reached via an intercom connected to the doorbell “No. Not today,” he said.
In a brief phone conversation a week earlier, he had said: “I really want to forget about all of that as much as I can. And so, I really don’t have any comments.”
Pasquill’s wife Vicki is also listed as an owner, solely or jointly, in three other properties in Vancouver with an assessed value of $6.5 million, according to land titles records.
After the commission sanctioned Lathigee and Pasquill, Lathigee, who had been living in Kitsilano on Vancouver’s west side, relocated to the United States.
He lives in Las Vegas and is listed as the owner of a 6,000-squarefoot, nine-bedroom, 41/2-bathroom home valued at US$547,654 (about $700,000), according to Clark County Assessor records.
While banned from the capital markets in British Columbia, Lathigee founded the Las Vegas Investment Club in 2009 and is also the chairman of the board of Adventure Combat Ops, a live-action attraction the club has invested in, according to information on the club’s website and Lathigee’s personal website.
Lathigee could not be reached for comment because he blocked Postmedia News’ numbers when phone messages were left for him in Las Vegas.
In 2016, a commission panel issued a fine of $15 million against Tom Williams and ordered him to pay back $6.8 million from an $11.7-million Ponzi scheme that duped 123 people.
Williams still lives in the same home in a quiet Surrey neighbourhood as he did when he ran the Ponzi scheme between February 2007 and April 2010.
The home, which is in his wife’s name, Lori Williams, was pegged at a value of just under $700,000 by B.C. Assessment in 2017.
In 2016, Lori’s father, Gordon Kenyon, was added to the title of the home for $10, at the same time the pair took out a $391,000 mortgage on the property, according to land title documents.
On a cool, sunny morning last month, Williams was in his back yard. Asked if he would discuss his penalty and whether he would pay anything, he declined.
He said he was too busy to do so. “I am kind of tied up right now,” said Williams. “I can’t talk right now.”
In 2009, a B.C. Securities Commission panel permanently banned four other B.C. residents from the province’s capital markets and ordered them to pay $26 million in penalties and return $16 million for operating a Ponzi
scheme that duped about 800 investors.
Dianne Sharon Rosiek, one of the four penalized for whom assets could be tracked down, has paid none of her $6-million fine.
According to B.C.’s Personal Property Registry, which registers loans on items such as vehicles or boats, Rosiek owns a 2014 Mercedes-Benz C350.
Rosiek could not be reached for comment.
In November 2014, former mutual fund salesman David Michael Michaels was banned from B.C.’s capital markets, handed a $17.5-million fine and ordered to pay back $5.8 million in commissions. A panel ruled he’d obtained the commissions as a result of illegally and fraudulently advising 484 clients to purchase $65 million in securities between June 2007 and December 2010. The average age of the clients was 72.
Almost all of the $65 million in investments are now worthless, according to court records.
Michaels’ home in Mill Bay, just north of Victoria, which is in his wife Joanne’s name only, is assessed at $707,000.
The couple jointly own a condominium in Hawaii, assessed by the County of Hawaii’s real property tax office at US$1.09 million (about $1.4 million).
According to B.C. Supreme Court records, Joanne worked for her husband.
The court records reveal this is a case in which the B.C. Securities Commission appears to be trying to identify the Mill Bay home and the Hawaiian condo, purchased in 2009, as being financed by Michaels’ fraudulent investment activities.
Michaels could not be reached for comment. His lawyer, Sean Boyle, said he could not help in connecting Postmedia News with Michaels.
In one of its latest major penalties, on Feb. 28, 2017, the securities commission permanently banned from B.C.’s capital markets sisters Siu Mui (Debbie) Wong and Siu Kon (Bonnie) Soo, handing them fines of $6 million each for multiple acts of fraud. They were also ordered to pay back $9.86 million in proceeds from securities sold for a land development project in Alberta started in 2007.
Reached by phone and asked if she intended to pay the fine, Wong said the commission was “crazy” for issuing such a huge fine. “How can you pay that kind of fine — that’s impossible,” she said.
She said the panel decision is being appealed.
According to B.C. Supreme Court records, the two sisters have a stake in at least eight properties in Vancouver, Langley, Surrey and Maple Ridge totalling at least $16.5 million, assets that have been frozen as a result of civil suits launched by disgruntled investors.
VICTIMS GALLED TO SEE FRAUDSTERS ESCAPE PENALTIES
Those who have been defrauded in these schemes say because the monetary penalties are hardly ever collected and jail time is rare they feel the fraudsters have been able to act with impunity.
It leaves a bitter taste for the victims because, in many cases, those who have perpetrated frauds seemingly continue to live as before without any obvious judicial punishment.
Kelowna resident Paula Cryderman lost half a million dollars in the Ponzi scheme orchestrated by Tom Williams.
“Basically he got away with stealing people’s money and has never had to pay a single cent,” she said.
In Ponzi schemes, named after 1920s fraudster Charles Ponzi, later investors are paid off with earlier investors’ money and not from the profits of any real business. Many investors lose money when the schemes collapse.
Cryderman, 61, did not consider herself a naive investor, and the documents she saw surrounding the investment scheme, and promised minimum returns of two per cent a month, enticed her to sign on.
The losses had a devastating effect on her life, not only financially but psychologically. She had to declare bankruptcy — although she managed to keep her house and a car — and had to return to work after she was able to retire at 55.
“It’s hard to talk about it. … It’s like being raped,” she said. “Somebody has reached into your life and pulled your life apart.”
Cryderman is the face of a sobering statistic.
An analysis of B.C. Securities Commission and court records shows at least 4,900 fraud victims lost $185 million in schemes in the past decade where the commission issued fines of $100,000 or greater to fraudsters or permanently banned them from B.C.’s capital markets.
The number of victims and the amount of losses is sure to be greater because it is hard to put figures to some fraud, for example, where investors have lost money in a scheme where fraudsters inflate the price of a stock and then sell it off.
Delta resident Jerry Schaab lost much less than Cryderman to the Ponzi scheme Rosiek was involved in — about $20,000 — but he finds it no less galling that none of those involved has paid any of the fines. “There is no justice,” said Schaab. He learned of the investment scheme through a one-time roommate and was enticed by the high returns promised.
He said he received payments of $400 a week for a couple of months and then it dried up.
There are others who have suffered worse.
Commission records show a 72-year-old man lost his already-mortgaged house when he invested $80,000 in the Rosiek Ponzi scheme by taking on additional mortgages.
He ended up with no money, bank and credit card debts of $70,000 and trying to find an “old pensioner house” to live in.
Those who have been defrauded and who spoke with Postmedia News, including Schaab, blame themselves for being duped, and say they should have seen warning flags. But it does not diminish the harm inflicted or the fraudsters’ culpability, they believe.
The Supreme Court of Canada agrees, determining in a 1997 ruling that a fraud victim’s actions — they should have known better or done more work to understand the investment, for example — cannot be used as a defence by the fraudster.
Victoria resident Helen Dubas was among the hundreds of seniors who invested $65 million with David Michael Michaels.
A widow, she lost $176,000, but considers herself one of the “lucky” ones as she has kept her house, albeit with a mortgage she will never pay off, and has pension income.
Dubas recalled that Michaels used the Hawaiian condo as a “carrot,” allowing investors to stay there if they enticed more people to join his investment scheme.
Photos show a nicely outfitted, two-level condo on luscious green grounds adjacent to the ocean on the north end of the island of Hawaii.
Said Dubas: “He’s got all this money he’s owing and he’s not paying it, and he’s still out there. It’s just so inequitable somehow.”
B.C.’S FRAUD FINE COLLECTION RATE AMONG LOWEST IN CANADA
The collection record in other jurisdictions is by no means stellar, but it is better than B.C.’s, according to an examination of the jurisdictions’ financial records.
The Ontario Securities Commission has a collection rate of about 18 per cent in the past decade, but there are still $370 million in uncollected fines.
The Alberta Securities Commission’s collection rate is about 18 per cent in the past decade on $56 million in penalties. Quebec has a rate of about 20 per cent in the past four years on $35 million in fines, while the U.S. Securities and Exchange Commission’s collection rate is nearly 60 per cent on $18.9 billion in the past five years.
The OSC recently retained a law firm that specializes in collecting debts, said James Sinclair, the Ontario commission’s general counsel.
The OSC has gone after property assets in the past and recently received money from the sale of a Porsche.
Said Sinclair: “These amounts aren’t great, but they do help us with the profile that it’s not necessarily easy for the perpetrators of these types of offences to get off scot-free.”
Alberta Securities Commission spokeswoman Hilary McMeekin said they go after all “cost-effective” avenues of collection, including seizing assets and garnishing wages, inside and outside Alberta.
University of California Irvine law professor Benjamin van Rooij noted that if penalties are not collected, it can create a situation of impunity.
“And impunity creates more violations,” said van Rooij, an expert in regulation, enforcement and compliance.
In a jurisdiction where collection is very low, perhaps one strategy would be to focus on one or more penalties where collection has the greatest chance of success and communicate any success as a warning to fraudsters, said van Rooij.
The bottom line for Vancouver lawyer John Green, who represents people who lost money through a Ponzi scheme perpetrated by notary Rashida Samji, is that even when people have money, the B.C. Securities Commission doesn’t seem to be able to get it.
“It takes (the application) of heavy resources and a willingness to do it — I don’t think they have either,” said Green.